The U.S. government is concerned enough about cyber-terrorism and other threats that it plans to spend $4.2 billion this year to keep its networks safe. Buoyed by the stimulus from terror threats but also buffeted by the downdraft from the dot-com bust, Internet security companies, many of which are selling technology developed in Israel, are testing the markets for products and capital worldwide.

This activity came into focus at the Israel Network Security Showcase in California’s Silicon Valley on July 9, where 10 Israeli Internet security startups presented their strategies for defeating threats posed by hackers and cyber-terrorists to networks vital to business, government and individuals.

These threats are real and growing as the world becomes more dependent on the Internet for telecommuting, e-commerce, e-mail and other services. Broadband users, demanding more efficient and businesslike service and always-on connections, will double to 60 million in the United States in 2007, said Henri Isenberg, vice-president for business development at Symantec, an established U.S. player in the online security industry. These committed users will be especially vulnerable if hack attacks cause them to lose service.

The consensus at the conference given the conflicting trends of rising attacks and the business slump was that spending on encryption, firewalls, authorization, monitoring, anti-virus and other security technologies will continue to grow, but will be more closely analyzed by companies intent on getting more effective Internet security for less money.

“There are no complete technological solutions to (Internet security), only tools in the tool box,” said Steve Hunt, vice president of research at Giga Information Group in Chicago. “But we’re still looking to companies that can provide us with those technical tools.”

Hunt singled out Israeli technology for providing the tools to combat the rising danger to computer networks as well as pushing other countries to improve their research in the security area. He said Israel is responsible for an average of 15 percent of the technology targeting the four major areas of computer security.

“American and European business and governmental agencies cannot survive without the long-term innovative potential of Israel in this industry,” Hunt said. “And competition from Israel is also driving other countries, such as Sweden, to work harder to innovate.”

Among the presenters at the conference, all with development operations in Israel and business and sales headquarters in the United States, were CyberArk, a startup that makes security “vaults” to protect vital company data; Gilian Technologies, a company that creates “exit control” platforms that recover original information and reload it automatically after a site has been hacked; and Riverdale Networks, which specializes in detecting and disarming so-called “distributed denial of service” attacks, which shut down networks by overloading them with information.

A variety of factors indicate that this group of companies, which also included Sanctum, ForeScout, Business Layers, Network Privacy, and others, should see an increasing demand for products that are proven to be effective, according to an industry report from JP Morgan H&Q.

Some of these factors include a continuing move towards a digital economy, increased frequency and complexity of attacks, growing concerns over cyber-terrorism, and a rise in U.S. government spending on IT security, which is expected to increase 50 percent during the 2002-03 fiscal year to $4.2 billion.

In addition, security spending as a percentage of total spending on information technology in the United States should rise to 10 percent in 2002 from 7 percent last year, with a projected 22 percent total growth rate over the next five years, said Sterling Auty, an industry analyst for JP Morgan.

But startups are also facing growing competition from larger players who are beginning to offer so-called one-source “suites” that offer blanket protection from a wide variety of threats. The smaller companies are countering by playing up specialization as an asset, striving to be known as “best of breed.”

Both approaches have advantages and disadvantages, according to Isenberg. “Suites” offer the efficiencies of a single service provider, but can often have less-effective technology. “Best of breed” providers offer the strongest technology, but often without the service and integration that makes all the pieces fit.

Customers should seek the best of both worlds, striving to find “the very best products from the least number of vendors,” Isenberg said.

The conference was sponsored by the California Israel Chamber of Commerce, the Israel Consulate General in San Francisco, the Moritz Technology Corporation and the BIRD Foundation. Representatives from such large U.S. companies as VeriSign, Intel, Cisco Systems, Network Associates, HP, IBM, Wells Fargo, McAfee, 3Com, and Microsoft were on hand to hear the presentations for possible investment, partnership or acquisition.